Question

LeMay Department Store uses the retail inventory method to estimate ending inventory for its monthly financial statements. The following data pertain to one of its largest departments for the month of March 2021:

		Cost		Retail
Beginning inventory	$	52,000	$	72,000
Purchases		219,000		412,000
Freight-in		19,470
Purchase returns		5,500		8,000
Net markups				7,000
Net markdowns				4,700
Normal breakage				8,000
Net sales				292,000
Employee discounts				3,000

Sales are recorded net of employee discounts.

Required:
1. Compute estimated ending inventory and cost of goods sold for March applying the conventional retail method. (Round ratio calculation to 2 decimal places (i.e., 0.1234 should be entered as 12.34%.). Enter amounts to be deducted with a minus sign.)

Cost Retail Cost-to-Retail Ratio Beginning inventory $52,000 $72,000 Purchases 219,000 412,000 Freight-in 19,470 Purchase returns (5,500) (8,000) Net markups 7,000 483,000 Net markdowns (4,700) Goods available for sale 284,970 478,300 Cost-to-retail percentage (conventional retail method) % Normal breakage Net sales: Sales (292,000) Employee discounts (3,000) Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

2. Recompute the cost-to-retail percentage using the average cost method. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34%).)

2. Recompute the cost-to-retail percentage using the average cost method. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34%).)

Answer 1

• Requirement 1

Cost	Retail	Cost-to-Retail Ratio
Beginning inventory	$52,000	$72,000
Purchases	$219,000	$412,000
Freight-in	$19,470
Purchase returns	($5,500)	($8,000)
Net markups		$7,000
		$483,000
Net markdowns		($4,700)
Goods available for sale	$284,970	$478,300
Cost-to-retail percentage (conventional retail method)		[$284970 / 483000]	59.00%
Normal breakage		($8,000)
Net sales:
Sales		($292,000)
Employee discounts		($3,000)
Estimated ending inventory at retail		$175,300
Estimated ending inventory at cost	$103,427 or $ (103,427)		[$175300 x 59%]
Estimated cost of goods sold	$181,543

• [2]

Average Cost method: Cost to retail = 59.58%

Average Cost
	Cost	Retail	Cost to Retail Ratio	Working
Beginning Inventory	$              52,000.00	$                    72,000.00
Plus: Purchases	$            219,000.00	$                 412,000.00
Purchase Returns	$              (5,500.00)	$                    (8,000.00)
Freight In	$              19,470.00
Net Markups	$                              -	$                      7,000.00
Less: Net MarkDowns		$                      4,700.00
	$            232,970.00	$                 406,300.00
Goods Available for sale	$            284,970.00	$                 478,300.00
Cost to retial Percentage			59.58%	( 284970 / 478300 ) x 100